Price elasticity of demand measures how much the quantity demanded of a product changes in response to a price change. Products are "elastic" if small price changes cause large demand shifts, and "inelastic" if demand remains relatively stable regardless of price movements.
Elasticity is calculated as the percentage change in quantity demanded divided by the percentage change in price. An elasticity of -2 means a 10% price increase would decrease demand by 20%. Essential items (medicine, basic food) tend to be inelastic, while luxury goods and products with many substitutes are highly elastic.
Understanding price elasticity is crucial for DTC pricing decisions. Products with high elasticity benefit from competitive pricing and promotions—small discounts drive significant volume. Inelastic products can support price increases without major demand impact. Testing different price points while measuring conversion rates helps brands discover their products' elasticity.